Quick Take: A regulator for India’s real estate sector

The Union Cabinet on Tuesday took a major step towards increasing transparency and accountability in the real estate sector by clearing the amended Real Estate (Regulation and Development) Bill, 2013. The amended legislation that is yet to be approved by the Parliament seeks to promote a uniform regulatory environment, protect consumer interest by ensuring transparency and fair-play in real estate transactions and fast-track adjudication of disputes. While initially applicable to the residential sector only, the scope of the amended Bill has now been expanded to cover both residential and commercial real estate. Key Provisions The Bill mandates the establishment of a Real Estate Regulatory Authority at the central and state levels with functions including appointment of adjudicating officers, settlement of disputes, allocating compensation, etc., for regulating real estate transactions. Other key provisions of the Bill include the following: • Registration of all projects (including ongoing projects that are yet to receive completion certificates) with the regulatory authority within three months. Projects cannot be launched or marketed without a prior registration. • Registration of real estate agents who intend to sell any plot, apartment or building. • Public disclosures of all project details such as details of promoters, project layout plans, status of statutory approvals and disclosure of proforma agreements, names and addresses of real estate agents, contractors, architects, structural engineer, amongst others. • Establishment of an appellate tribunal and a fast-track dispute resolution mechanism. Noteworthy Addition(s) / Amendment(s) • The earlier Bill mandated developers to deposit 70 percent of funds collected from buyers for a particular project into a separate escrow account to meet construction costs of that project. This limit has now been reduced to 50 percent, thereby offering developers more flexibility with respect to diverting funds towards other costs. • Another notable feature in the Bill prohibits the promoter/developer from altering plans, structural designs and specifications of the project unless two-third of the allottees agree to such a change. Penalty provisions Developers and property dealers would be penalised for non-compliance of the orders of the regulatory authority. The penal provisions involve the following: • Payment of up to 10 percent of project cost for non-registration and payment of additional penalty that may extend to a further 10 percent of project cost or three-year imprisonment or both, if still not complied with. • Payment of up to 5 percent of project cost as a penalty for incorrect disclosure of information and for non-compliance with provisions relating to disclosures. • Cancellation of project registration in case of continued violations. What does it mean for the Real Estate Sector? From the perspective of consumer protection and promoting transparency, the amended Bill is a step in the right direction; however there is lack of clarity with respect to incentivising developers through faster clearances if they comply with all mandatory provisions. Besides, in the event of a delay in project clearances on the part of the government authorities, the penalty implications on the part of the developers need clarification. The Bill should also provide for holding authorities accountable for delays in approval processes that impact project timelines. Other reforms such as digitisation of land records, easier land acquisition procedures and faster environmental clearances should also be looked into. At the same time, the retrospective applicability of the Bill with respect to registration of all ongoing projects is not likely to augur well with the developer community. Despite concerns, the Bill is likely to promote transparency and establish standard practices for sale and purchase, besides facilitating investments into the sector. Though the fine print is yet to be shared in the public domain, we hope the final legislation is balanced enough not to deter developers from starting new projects and new players to enter the sector.